Budget 2026: PHDCCI recommends reform agenda as spotlight falls on banks, MSMEs

The recommendations put forth by the PHDCCI (PHD Chamber of Commerce and Industry) for Budget 2026, focusing on deeper divestment, privatization of Public Sector Enterprises (PSUs), clarity on public sector banks, and support for MSMEs, are not just mere suggestions but reflect a continuous and evolving debate at the heart of India's economic policy. To truly understand their significance, we must delve into the historical context and the current economic landscape.

**Background Context: India's Economic Journey and the Role of PSUs**

Post-independence, India adopted a mixed economic model, with a strong emphasis on state-led industrialization, championed by leaders like Jawaharlal Nehru. Public Sector Undertakings (PSUs) were envisioned as 'temples of modern India,' playing a crucial role in heavy industry, infrastructure development, and achieving social equity. This era saw the nationalization of key sectors, including major banks in 1969 and 1980, to ensure credit availability for priority sectors and prevent concentration of wealth. However, by the late 1980s, many PSUs faced issues of inefficiency, technological obsolescence, and financial losses, becoming a drain on public exchequer. The economic reforms of 1991, triggered by a balance of payments crisis, marked a paradigm shift towards liberalization, privatization, and globalization (LPG). This initiated the process of disinvestment, aiming to unlock capital, improve efficiency, and reduce the government's fiscal burden. Successive governments have pursued disinvestment with varying degrees of enthusiasm, culminating in the current government's stated policy of 'minimum government, maximum governance' and strategic asset monetization.

**What Happened: PHDCCI's Forward-Looking Agenda**

PHDCCI, a prominent industry body, has presented a reform agenda for Budget 2026, anticipating the new government's economic priorities. Their core recommendations are multi-faceted. Firstly, they advocate for 'deeper divestment and privatization' of PSUs. This goes beyond mere minority stake sales and suggests a significant reduction or complete exit of government ownership in many state-owned entities. The rationale is clear: to boost corporate activity by allowing private sector dynamism and efficiency to take over, thereby improving productivity and potentially attracting more investment. Secondly, the recommendations seek clarity on the 'future of public sector banks.' Despite recapitalization efforts, many PSBs continue to grapple with Non-Performing Assets (NPAs) and governance challenges. The industry body is likely pushing for consolidation, privatization, or a clear roadmap for their long-term viability and competitiveness against private banks. Thirdly, enhanced support for Micro, Small, and Medium Enterprises (MSMEs) and the broader financial sector is highlighted. MSMEs are the backbone of India's economy, contributing significantly to GDP and employment, but often face challenges in accessing credit and navigating market uncertainties, especially those arising from export fluctuations.

**Key Stakeholders Involved**

Several entities are central to this reform agenda. The **Government of India**, particularly the Ministry of Finance and the Department of Investment and Public Asset Management (DIPAM), is the primary policymaker and implementer. **NITI Aayog** plays a crucial role in identifying strategic and non-strategic sectors for disinvestment. **PHDCCI**, representing the private industry, acts as an advocate for market-oriented reforms. **Public Sector Undertakings (PSUs)** and **Public Sector Banks (PSBs)** themselves, along with their employees and unions, are directly impacted, often raising concerns about job security and social welfare. The **private sector investors and corporates** are potential buyers and beneficiaries of a more open market. Finally, the **general public** as consumers and taxpayers are stakeholders, affected by the efficiency of services and the utilization of public funds.

**Why This Matters for India**

These recommendations carry profound significance for India's economic trajectory. Deeper divestment and privatization can generate substantial revenue for the government, helping to manage the fiscal deficit and free up resources for social sector spending or infrastructure development, aligning with the goals of the **Fiscal Responsibility and Budget Management (FRBM) Act, 2003**. It can also inject much-needed capital and management expertise into struggling PSUs, enhancing their competitiveness and efficiency. For public sector banks, a clear policy direction is crucial for financial stability and credit growth, which are vital for economic expansion. Strengthening the MSME sector, as enshrined in the **MSME Development Act, 2006**, is critical for job creation, equitable growth, and fostering a robust domestic manufacturing base, especially in the face of global export uncertainties. The overall aim is to make India's economy more resilient, competitive, and attractive for both domestic and foreign investment.

**Future Implications**

If these recommendations are adopted, India could witness an acceleration of its economic reforms. A bolder privatization drive could lead to more efficient resource allocation, technological upgrades, and improved service delivery in sectors currently dominated by PSUs. However, it also presents challenges: managing the social costs of job losses, ensuring fair valuation of assets, and preventing the creation of private monopolies. For MSMEs, targeted support could unlock their immense potential, making them more resilient to global shocks. The clarity on PSBs could lead to a leaner, more efficient banking sector, better equipped to support India's growth ambitions. This reform push aligns with India's broader ambition to become a 5 trillion-dollar economy and a global manufacturing hub, necessitating significant structural changes and a greater role for the private sector. The government's approach will be critical in balancing economic efficiency with social equity, a constant challenge in a diverse democracy like India.

While specific constitutional articles do not directly govern divestment, the power to legislate on corporations, banking, and trade falls under the Union List (Entry 43 for incorporation, regulation, and winding up of corporations; Entry 45 for banking; Entry 24 for industries) of the Seventh Schedule, enabling the Union government to formulate policies related to PSUs and the financial sector. The implementation of such policies would also need to be consistent with fundamental rights, particularly Article 19(1)(g) regarding freedom to practice any profession, or to carry on any occupation, trade or business, and principles of natural justice.